Transportation

Is Ontario destined to become a relic of the auto industry?

Judging by the province’s record on EV innovation and manufacturing, the future of its auto sector looks bleak.

Several electric cars charging in downtown Toronto

Ben Faiola drives his Michigan-made Chevy Volt into his garage, turns it off and just walks away. Usually, he’d have to do what nearly all electric vehicle owners must do to start their next trip on a fully charged battery: plug the car into a wall charger.

Not Faiola. He’s one of a handful of people in Canada who has installed a wireless EV charging system called Plugless, developed by Richmond, Virginia-based Evatran Group. The system just sits on the floor of Faiola’s garage. All he has to do is drive over it with the help of a wall-based unit that uses light signals to guide him in like an airplane on a runway.

Once the vehicle is properly positioned, magnetic fields are used to transfer energy across several inches of air from the floor pad to a receiving coil attached to the bottom of the car. It’s the future of EV charging, says Faiola, who as an employee of Autochargers.ca of Vaughan, Ontario, is on the front lines of EV innovation.

Faiola’s plugless charging system at work

“It’s been working really great,” he says. “I think this is one of those technologies that are here to stay.”

Here to stay, maybe, but not made here – not in Ontario, the country’s automotive manufacturing heartland. There are no established manufacturers of EV charging stations in Ontario. There is no final assembly of plug-in electric vehicles happening in the province. There is no apparent vision or strategy aimed at positioning Canada’s largest economy as a hub of electric vehicle innovation or manufacturing.

This has observers like Faiola worried.

“There’s a lack of leadership in Ontario,” he laments, pointing blame not just at government, but all industry stakeholders – universities, auto companies, auto industry suppliers and others. “Our efforts are not collective. The stakeholders need to gather around a table and come up with a plan together.”

Missed opportunity?

Nearly seven years ago, it looked like that leadership was emerging. On January 15, 2009, then-Ontario Premier Dalton McGuinty stood at a podium beside a shiny new Renault electric car and announced a partnership with Better Place, a well-funded California startup run by entrepreneur Shai Agassi. Better Place aimed to establish a global network of battery-swapping and charging stations for electric cars, and McGuinty wanted Ontario to be an early member of that network.

“One of the most important things we can do is demonstrate we are truly an electric-car friendly jurisdiction,” McGuinty said as a dozen or so black-suited government officials applauded in gushing support. It was mostly a symbolic announcement – a chance for McGuinty to signal Ontario’s intentions without actually putting flesh in the game. No major investment was made, beyond soft commitments for education and demonstration projects.

Still, it was trumpeted as a serious first step. Agassi praised Ontario for “taking a system-wide approach to retooling its economy,” and touted it as a stimulus needed for job creation and economic growth.

Six months later, it seemed McGuinty was intent on following through. He announced his government’s aim of having one of every 20 vehicles driven in Ontario be electrically powered (hybrids, plug-in hybrids and all-electrics) by 2020. He made up to $10,000 in rebates available to purchasers of plug-in vehicles, and gave drivers of such vehicles special privileges, such as open access to high-occupancy vehicle (HOV) lanes and free use of public EV charging facilities.

“Electric vehicles are the way to go in Ontario,” McGuinty said. “This plan helps get more people behind the wheel of a green vehicle to create jobs, reduce smog and equip Ontario for the 21st century.”

Fast-forward to 2015 and the results have been mixed – and mostly underwhelming.

No question, sales of hybrids have grown, as have consumer purchases of plug-in vehicles. As of June 2015, there were about 4,500 plug-in electric vehicles registered to drive Ontario roads, compared to just a few dozen back in 2009, and annual sales continue to rise.

Click to enlarge

But plug-in vehicles only represent .05 per cent of car sales. To reach McGuinty’s 2020 goal, an estimated 360,000 of these electrically powered vehicles need to be registered in Ontario within five years, representing a 80-fold increase from today’s level. Even factoring Prius-style hybrids into that number, it’s an ambitious – if not impossible – goal.

Calling impact and efforts to date “very modest,” Ontario’s Environmental Commissioner recently urged the province to up its game if it hopes to achieve its GHG emission reduction target. The commission’s 2015 greenhouse gas progress report said electric vehicles have the potential to greatly reduce emissions in the transportation sector, which is currently the largest contributor of GHGs in the province at 34 per cent.

A May 2015 study from Plug’n Drive, a non-profit electric car advocacy organization, estimates that Ontario drivers that switch from a conventional gas-powered vehicle to an electric car can reduce emissions by between 67 and 95 per cent because of the low-carbon, coal-free profile of the province’s electricity system.

“If Ontario were to achieve a 25 per cent increase in EV sales to 2020, the province would have more than 100,000 EVs on the road by 2050, reducing Ontario’s GHG emissions by as much as 9.19 megatonnes, or 6.5 per cent of Ontario’s total reduction target for 2050,” the report says.

Raise that annual sales growth to 50 per cent and nearly 400,000 EVs would be on the roads by 2050, quadrupling the GHG reduction impact.

Bigger problems

Slower-than-expected adoption of electric vehicles in Ontario is one concern, but the inability of the province to capture the economic upside of electric vehicle growth is potentially more serious over the long term. If electrification of transportation is a lasting trend, and most observers say it is, then becoming an R&D and manufacturing hub for battery-powered cars would seem an obvious job-creating destination for Ontario’s auto sector.

“Ontario is ideally positioned to be a leader in EV manufacturing, research and development,” according to a recent study from the non-profit Windfall Centre, which calls on the province to exploit its strengths and carve out an EV manufacturing node that will shore up its sagging auto sector. “Missing the manufacturing opportunities presented by a transformative shift to low carbon vehicles would have dire economic consequences for Ontario’s labour market.”

Hopes were high in August 2011 when McGuinty announced Toyota’s plans to manufacture its Toyota RAV4 EV at its Woodstock plant “because of the province’s commitment to electric vehicles.” McGuinty declared Ontario’s auto industry “back on track.”

But Toyota discontinued production of the RAV4 EV in September 2014, and now seems focused on producing its Mirai fuel cell vehicle. There’s no indication the Mirai, a risky bet for Toyota, will be manufactured in Ontario. Beyond the Cambridge-made Lexus RX 450h hybrid, there are no electric-powered passenger vehicles produced in Ontario or appearing in the manufacturing pipeline. As for Better Place, it went bankrupt in 2013 and never really did much in the province after its high-profile PR stunt in 2009.

So what’s next? What card does Ontario hold up its sleeve? Is there a card even stuffed up there?

A worker on the line at the Oakville assembly complex installing batteries into a Ford Flex.

“If you’re talking about a government strategy, there’s really been no strategy from the Ontario government,” says Kumar Saha, a Toronto-based automotive analyst with global research firm Frost & Sullivan. “It’s been piecemeal. Just throwing money here and there.”

It may be troubling for some, but Ontario’s auto sector has bigger problems, Saha adds. The province was once a powerhouse of the auto industry, but for more than a decade it has struggled to stay competitive. Manufacturing continues to migrate to countries, such as Mexico, where labour costs are lower and production overall is cheaper.

According to Plug’n Drive, GDP from Ontario’s auto sector fell by about 14 per cent from 2002 to 2012. A year after the 2008 financial crisis, sector output plunged by a third, and while it has recovered slightly the long-term outlook is bleak. The focus today isn’t so much on growth as it is on stopping the bleeding.

“Forget electric vehicles. We’re not able to keep or attract manufacturing for regular cars,” says Saha. “EVs are not even on the radar, really.”

Saha says the reason companies like Ford and Toyota initially set up manufacturing in Ontario was because of demand for the vehicles in Ontario and across Canada. That local footprint, along with a cheap Canadian dollar, the Auto Pact and later NAFTA, created a strong business case. On the other hand, with local demand for EVs currently so small and the unlikelihood of being able to export Ontario-made EVs to the United States, the business case doesn’t exist.

Instead, GM is making the Chevy Volt in Michigan, along with its batteries and battery packs. Ford’s Focus Electric is being made there, too. The Nissan Leaf is made in Japan and now supplies U.S. demand from a plant in Tennessee. Tesla builds its cars in California. The Smart Fortwo Electric is made in France, the BMW i3 is made in Germany, and the Kia Soul Electric comes from South Korea. Canada, without its own original equipment manufacturers (OEMs), is at a significant disadvantage. Even a homegrown autoparts giant like Magna International does the bulk of its electric vehicle R&D in the U.S. and elsewhere.

It’s still early days. As EV sales pick up in Ontario and neighbouring jurisdictions, there’s always a chance the province will lure some EV manufacturing, but it’s a slim one, says Saha. “I wouldn’t go so far as to say Ontario auto production is at the Kodak moment, but we’re close,” he says.

The challenge, he explains, is one of optics. The province hasn’t consistently shown a commitment to build demand for electric vehicles. Beyond incentives for consumers, there’s been no broad strategy aimed at positioning Ontario as an EV manufacturing and R&D hub – the kind that has sprouted in Silicon Valley, thanks to a bold gamble by Elon Musk.

“There hasn’t been a demonstration from the Ontario government that they’re willing to go the extra mile,” adds Saha, pointing to a perception that has since taken hold. “We are not as uncompetitive as people make us out to be, but once that becomes part of the conversation people stop listening. The result is that Canada just isn’t part of that conversation for building electric vehicles.”

A window closing

Brad Duguid, Ontario’s minister of economic development, paints a different picture. Unavailable for an interview, he agreed to answer questions from Corporate Knights by e-mail. In his response, he pointed to how EV consumer rebates have made Ontario a leading jurisdiction in Canada for adoption of plug-in vehicles.

He made reference to the now-cancelled RAV4 EV and the Lexus RX450h being produced in the province. He also cited the $16.7 million invested in lithium-ion battery developer Electrovaya and $2 million put into Dana Holding of Ohio to develop battery-cooling systems for hybrid and electric vehicles at its facilities in Oakville and Cambridge.

It’s something, but not much – and industry observers say it’s not nearly enough, or going to the right places. Lithium-ion battery maker Electrovaya, for example, has been accepting handouts from Ontario and the federal government for nearly a decade with little to show for it and no evidence of government follow-up.

“We will continue working with all our automotive partners to ensure Ontario is a leader in next generation production and that Ontario continues to produce electric vehicles,” Duguid wrote.

When asked if Ontario was missing out on the EV revolution, Duguid emphasized that the market was still emerging and that adoption of EVs worldwide – not just in Ontario – has been slower than expected.

Does the province have a comprehensive strategy, or is one in the works?

He didn’t answer directly. Instead, he made reference to the creation of a new subcommittee in June as part of a partnership between the federal government and the Canadian Automotive Partnership Council. The subcommittee is chaired by former Toyota Canada chairman Ray Tanguay, who Duguid described as “one of the industry’s strongest and most successful advocates.” Media refer to him as Canada’s new “car czar.”

Under Tanguay’s leadership, the subcommittee is supposed to figure out how to stop the industry’s bleeding and nurse it back to health. Duguid said that task includes promoting Ontario as a destination for producing next-generation vehicle technology, “including electric vehicles.”

Saha doubts Tanguay is even thinking about electric vehicles. “We’re in panic mode right now,” he says. “His job is to save what we’ve got.”

In this environment, some Ontario-based companies initially focused on the electric vehicle market have been forced to adapt. CrossChasm Technologies, an EV analytics and simulation company spun out of the University of Waterloo, has shifted its efforts to “connected cars” – that is, designing the software and services that allow vehicles to better communicate with charging stations, other cars, and their drivers. As the Internet of Things emerges, the idea is to increasingly make cars one of those things.

“My thought is that we have missed the manufacturing boat but that there is a better boat that’s about to leave port and we should try to be on it,” explains Matthew Stevens, chief executive of CrossChasm. “EVs, and cars in general, are in desperate need for better connectivity. So instead of being ‘Built-in-Ontario’, I think about EVs and other cars as being ‘Connected-By-Ontario’.”

Stevens admits that leadership on connected cars won’t lead to thousands of assembly line jobs, the kind that politicians like to announce from factory floors in front of reporters and TV cameras. The upside, he says, is that the jobs that are created – while fewer – will be high-paying, high-skilled jobs and the products created have huge export potential. Already, CrossChasm’s connected-car technology has been deployed in 23 countries.

Down, but not out

Josipa Petrunic, executive director of the e-mobility program at McMaster University’s Institute for Transportation and Logistics, is more optimistic. We’re losing what she calls the “assembly game,” yes, but Petrunic’s response: “Who cares?”

“I know that’s a brutal thing to say, but in a globalized world, the end point in the supply chain is the final assembly, and it’s the lowest value world. We’re essentially assembling Lego pieces,” she says.

In her view, instead of throwing bags of money at existing manufacturers to keep assembly-line jobs related to yesterday’s automotive technology, the Ontario government should focus less on the tail and more on the brains of the operation – that is, building innovation capacity for vehicle electrification. By demonstrating vision and leadership on innovation, jobs for assembly of next-generation vehicles are more likely to follow.

Sergio Marchionne, chief executive of Fiat Chrysler Automobiles, recently said Ontario should work to create a “mini Silicon Valley” for its auto sector. “Let the kids run,” he told the Globe and Mail in July. “Give them the toys and let them play.”

But on innovation, Petrunic disputes any notion that the province is falling behind – that the kids aren’t running. Key to her assessment is that Prius-like hybrid vehicles, such as the Ontario-made Lexus RX450h, not be distinguished from plug-in electric vehicles like the Volt or Leaf. They all share many of the same components: electric motors, power electronics, batteries, battery management systems, ultracapacitors and lightweight materials – all areas with room for massive improvement.

“It’s important to remember most Canadians’ first introduction to electric vehicles will be through a hybrid,” she says, explaining why downplaying Ontario’s role in manufacturing the Lexus hybrid would be a mistake. She points to the e-drive research that auto parts manufacturers such as Magna and Linamar are doing behind the scenes, and the fact that 22 universities across Canada – 10 of them in Ontario – are actively involved in electric transportation research. “It’s just not the case that Canadian companies are not active in this field.”

All of that said, Petrunic does feel that 2015 is a pivotal year for Ontario’s auto sector and that what happens over the next two years will make it or break it. To make it, she believes the following needs to happen:

Map the ecosystem. Ontario’s economic development ministry needs to get a better handle on what the province’s auto-sector innovation ecosystem looks like, beyond the handful of companies that have received grants. Petrunic says there’s little information available about companies and organizations working on electric propulsion technologies. “Of those companies that do exist, there’s no coordination, no one-stop shop where they can go learn about each other or the industry,” she says.

Promote industry cooperation and coordination to reduce market fragmentation. Establish an innovation centre, similar to Kingston’s GreenCentre Canada, which has become a successful hub of support for green chemistry breakthroughs across the country and helps university researchers and emerging companies commercialize their products and services. Petrunic has asked many startups what they most need to scale up their businesses. “Their response is an innovation centre, something that coordinates the brains of Ontario’s auto operations.”

Better branding of Ontario. Compared to Michigan, which generates 65 per cent of its electricity with fossil fuels (mostly coal), Ontario’s electricity mix is much greener. About 90 per cent of electricity generated in 2014 came from emission-free sources, with the remaining 10 per cent from natural gas. If Ontario wants to make green cars, it should promote itself as one of the greener places to manufacture them. It should tout that its cars were made at coal-free factories.

More support and investment in EV-friendly infrastructure. EV owners want confidence that they’ll have plenty of access to charging spots. The province’s local electric utilities have been eager to boost EV charging infrastructure as a source of future revenue, but negative regulatory decisions from the Ontario Energy Board created an industry chill that is just now beginning to thaw. Petrunic says Ontario’s energy ministry needs to get behind utilities by creating policies that allow for open-source smart charging networks to be developed across the province. Coordination of utilities is key, and it’s currently lacking. With it, a strong local market can develop to support local innovation.

“I actually find a lot of reasons to be excited, as we do punch above our weight right now,” says Petrunic, adding that the appointment of Tanguay as car czar makes sense, given Toyota’s leadership on hybrids and the insight he can provide on the technology pipeline.

On the need for better industry coordination, she’s hopeful but warns that time is running out. “I do believe by the end of the year we could have an automotive innovation centre announced. If no innovation centre opens up in 2017, I would say yes, Ontario is in trouble.”

Saha isn’t as hopeful, but says the government and industry in Ontario can clearly do better. “The government has to create a conversation about why Canada should be an auto making destination. That conversation has started a little bit, but it needs to ramp up.”